Sound Corporate Governance is bedrock of corporate sector that contributes to the sustainable growth and development of the Nation as a whole: Dr Ajay Bhushan Prasad Pandey, NFRA
Time to go back to Basics of Internal Financial Controls to prevent frauds: NFRA
Time to revisit concept of ‘Going concern’
Dr Ajay Bhushan Prasad Pandey, Chairperson, National Financial Reporting Authority while delivering the Keynote Address today at the Conference on “Financial Reporting & Governance Framework – Building Trust” organized by Confederation of Indian Industry (CII), spoke about the role of Financial Reporting and Corporate Governance in the Corporate Sector.
Dr Pandey mentioned about a number of path breaking reforms initiated by Indian Policy Makers during last few years, both for enabling growth and development of business sector and society such as Digital Reforms like Aadhar, UPI, GST and Tax Reforms. He also mentioned about several institutional building reforms like NFRA, IBC, NCLT etc.
He said Sound Corporate Governance is bedrock of corporate sector that contributes to the sustainable growth and development of the Nation as whole. Investors reward the well-governed corporates.
Dr Pandey said need of the hour for the Finance Community and Directors is to take measures to prevent frauds and failure of internal financial controls such as developing Case Study of Register of Frauds. Perhaps it is time to go Back to Basics of Internal Financial Controls as not all the corporate frauds were committed by very sophisticated designs but by age old methods of fictitious sales and loans and advances, over invoicing of purchases, related party transactions and due to failure of basic internal controls.
In relation to building trust and meeting stakeholders expectations, Dr Pandey mooted idea of crowdsourcing of risk related and matters of emphasis for auditor consideration. He also suggested consideration of UK Brydon report recommendation of publication of Directors Risk Report before the audit scope is decided by The Audit Committee which can evaluate stakeholders inputs on that Risk Report.
In respect of going concern assurance of the companies, Dr Pandey said there is a need to revisit this short term and vague ‘Going Concern’ accounting concept and replace with long term viability or Resilience Statements by the Management and Board.
In the area of Corporate Reporting, Dr Pandey advised to avoid subverting the core principles of applicable Ind ASs saying those are ‘Subordinate Legislation’.
On the Sustainability Reporting Standards, he said it is better to align with those of International Sustainability Standards Board of IFRS Foundation.
Mr N Venkatram, Chairman, CII National Committee on Financial Reporting and Managing Partner and CEO, Deloitte Haskins & Sells LLP observed that “The projected growth in India’s GDP requires considerable capital formation and investment, a large portion of which will come from foreign direct investment. As we grow our companies in this environment, attracting capital both domestic and foreign will require strong corporate governance, trust equity, and globally accepted financial reporting standards and regulations. Now more than ever, when information is omnipresent and perceptions reign supreme, stakeholders expect organizations to do the right thing and to do it well, continuously building trust equity every single day.”
Speaking at the Conference, Mr Ajay Bahl, Chairman, CII Task Force on Judicial Reforms, stated that “Achieving excellence in financial reporting and corporate governance should be a major goal for any investor-friendly economy like India and requires a robust ecosystem of checks and balances where independent directors, statutory and internal auditors and other stakeholders have a very important role. Regulatory oversight of governance, financial reporting and compliance with auditing and accounting standards is necessary and NFRA has a key role. Regular dialogue between NFRA and the relevant stakeholders can supplement its efforts. An increased focus on environment, society and governance is very relevant so that corporates also focus on areas beyond profit and investor returns. Additional reporting requirements mandated by the MCA in 2021 for prescribed companies should now highlight signs of stress and going concern risks for a Company. Those responsible for governance, financial reporting and auditing should use technology and methodologies as an aid and tool but not to replace human judgment.”
Mr David Barnes, Global Regulatory & Public Policy Leader, Deloitte stated that “In India and around the globe, trust is the absolute bedrock of high quality corporate reporting. With the opportunities offered by technology and the evolution of corporate reporting, investors and broader society are demanding not only high quality historic financial reporting but also sustainability information that they can trust and upon which they can base decisions. Each actor in the Corporate Reporting ecosystem has a key part to play: preparers; those charged with governance; auditors; regulators; investors and indeed standard setters. These debates are happening in many parts of the world. Solutions and standards need to respond to local requirements but investors and other users are telling us that fundamentally they need globally consistent standards to provide high quality comparable data and drive strategic decision making”.
Speakers at the conference commended CII for its constant endeavors in providing a platform for deliberations on contemporary issues concerning industry. The day long Conference deliberated on vital topics including Building Trust in Financial Reporting – Strengthening Corporate Communication; Engagement Between Regulator & Industry; ESG Reporting and Disruption & Role of Technology in Strengthening Governance.
Mumbai
2 December 2022